Meeting COP26 commitments is going to be an uphill battle for Asia’s top 10 carbon dioxide emitters.
In Europe, refiners are facing a more immediate challenge, in the form of the omicron variant of COVID-19 threatening oil products demand, while in the US eyes are on natural gas demand ahead of winter.
1. The road ahead for Asia’s top 10 CO2 emitters
What’s happening? Asia Pacific’s top carbon dioxide emitters will need to cut their emissions by almost half from 2020 levels to meet the baseline target under the Paris Agreement. This means a 1.5-degree target will be out of reach without greater ambition, according to S&P Global Platts Analytics’ Future Energy Outlook.
What’s next? In the next three decades, the region’s top emitters will have to cut their fossil fuel demand by 35% and increase renewables demand by over 350%. Platts Analytics expects coal to remain the predominant form of electricity generation in India and China post-2030, and gradually decline moving toward 2040 and beyond. Domestic emission trading schemes are expected to be implemented in more Asia Pacific, and cross-border carbon trading will also become more vibrant.
2. Henry Hub winter strip falls under $4.00/MMBtu on production gains, mild winter weather
What’s happening? The market experienced a significant sell-off in late November and early December, falling under $4.00/MMBtu, as US production remains robust above 94 Bcf/d, outpacing record LNG feedgas deliveries above 12 Bcf/d. The sell-off was driven by a combination of high production and expectations of mild weather through the rest of winter.
What’s next? While Platts Analytics expects that production is likely to at least remain flat through the winter, LNG demand is expected to reach up to 13 Bcf/d in January and February. Although a mild start to winter has helped to calm concerns over potential storage reliability issues, it is still too early to write this winter off as a dud as a few cold snaps in periods of high export demand can still tighten the market quickly and drive prices back up.
3. Harvest pressure halts Australian wheat rally
What’s happening? Australia’s wheat export prices have come under the harvest pressure, tumbling for the first time since the current marketing year started Oct. 1. Australian Premium White grade wheat were assessed at $365/mt Dec. 9, coming off the peak of $372.50/mt Dec. 7. Apart from the supply pressure, heavy showers in most parts of the country are also weighing on the prices of the premium quality wheat.
What’s next? With the prices of high-protein content wheat declining, demand for Australian wheat is expected to increase over the next few weeks. This comes at a time when global wheat markets are gearing up for Russia’s wheat export quota. Russia, the world’s largest wheat exporter, will start implementing its quota in February. This is expected to support Australian exports. Australian wheat remains significant for a steady global wheat supply, which is seen tightening amid likely poor output in North America and restrictions in Russia.
4. European refining margins choppy as omicron impact remains uncertain
What’s happening? European refining margins are reflecting market uncertainty over the impact of omicron on aviation and mobility. Before the emergence of omicron, European refiners were already facing concerns over demand recovery due to another COVID-19 surge in the region. Extremely high natural gas prices, which increase operating costs, have also added pressure. Refiners reliant on purchased gas have faced softer margins, at times narrow enough to encourage lower refinery runs. Margins have been especially poor for refiners using Urals and Forties crudes. However, refiners able to use a cheaper feedstock, such as one priced at a parity to HFO, have seen stronger margins, often at a $4-5/b premium to using purchased natural gas at spot prices.
What’s next? Refiners pressured by weak margins may be compelled to cut runs. The market is already tight for most refined products, and lower regional output will only make it tighter. Refiners able to circumvent inflated spot natural gas prices will benefit from lower runs by other refiners, as reduced supply in the market will give their margins some uplift. The pace of demand recovery is also a key indicator for European refining margins. Aviation is the most vulnerable segment, and domestic flights in Europe have been particularly affected by new restrictions. Lower refined product inventories in the region will support European refining margins, but healthy product consumption is also necessary for margins to improve.
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Source: Platts
